Last week, the U.S. Supreme Court (in the case of Clark v. Rameker) decided that an inherited IRA is not protected from your creditors in bankruptcy.

Until yesterday’s ruling, courts had been split on this issue.  In the Clark case, the Bankruptcy Court ruled that an inherited IRA does not share the same characteristics as a traditional IRA and held it was not exempt from creditors in a bankruptcy proceeding.  A United States District Court reversed the Bankruptcy Court, but the United States Court of Appeals for the Seventh Circuit then reversed the District Court.  The federal courts in other areas of the country had been split on this issue as well.  The unanimous decision by the U.S. Supreme Court is a very significant ruling since there is quite a bit of wealth in the United States held in inherited IRAs.

Traditional and Roth IRAs are not affected by last week’s Supreme Court decision.